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Retirement Made Simpler News
July 1, 2010
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Automatic 401(k) in the News
Automatic Enrollment in 401(k) Plans Now Dominates at Large Employers
A majority of large employers now automatically enroll workers in their 401(k) plans, the nation's predominant vehicle for employees to save for retirement, according to a new survey by Towers Watson, a global professional services company. The survey also found that target-date funds are the most prevalent default investment option used for 401(k) plans.
Key Findings of the survey of 334 companies with 1,000 or more employees:
- 57% automatically enroll employees into their 401(k) plans. This includes 39% that automatically enroll new employees and 18% that automatically enroll all employees.
- Another 3% plan to begin automatic enrollment by next year, and an additional 18% are considering it.
- Employee satisfaction with automatic features is high. In 2009, relatively few employees declined to participate after they were automatically enrolled: 85% of companies report fewer than 10% of employees opted out of the 401(k) plan.
More Information
Read the Release
401(k) Survey Shows Gap Between Employee Behavior and Intent, High Rate of Satisfaction with Automatic Features
Most employees participating in defined contribution plans say 401(k)s are more important to them than before the 2008 financial crisis, but their behavior shows a “shocking gap” between their ideals and their ability to save, a new BlackRock survey shows.
While experts estimate that defined-contribution (DC) investors should save 10% to 12% of income annually, the reality is that most people only manage to set aside between 6% and 7%. Using automatic features such as automatic escalation and offering a company match can help close the gap.
Key Findings:
- Plans auto-enrolling entire populations (new and existing employees) helped push up participation rates to 80% in 2009 from 77% in 2006.
- Three out of four survey participants said they were happy with automatic features and only one out of 10 said they would feel "resentful" if the company made that decision for them.
- 33% of participants believed that auto-escalation was “very influential” in helping them save more.
- 76% of 401(k) participants in 2010 reported a positive reversal in their balances compared to 2009. At the same time, while 65% of participants were confident about their future ability to retire compared to 53% a year earlier, 49% reported feeling less confident about managing their retirement investments since the economic downturn of 2008.
- Of the 77% of participants who knew their employer’s match deferral rate, 83% said they were investing at that rate to receive the full match.
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Workers Highly Receptive to Auto Features
Research by Prudential found that workers are receptive to putting automatic features in retirement plans.
The report, "New Economic Reality and the Workplace Retirement Plan," found that 74% are positive about automatic enrollment, according to the survey. Similarly 70% are positive about a default savings rate and 65% are positive about automatic contribution escalation.
Read the Report
Read the Article in Plan Advisor
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